A new tax year is, for many businesses, the most significant financial event in the calendar.
It can have a multitude of effects on both your company and you personally, some of which you may not even be aware of. And until the new tax year rolls around, any policies are subject to change in accordance with alterations to the government’s Spring Budget, due to be announced on March 11th 2020 after having been postponed.
If you’re wondering when the new tax year starts and how it might impact your business and personal life, look no further.
When does the new tax year start?
A tax year is the 12-month period covered by a tax return.
In the UK, the tax year runs from April 6th until the following April 5th. So now is the time to ensure you’re on top of your finances, ready to start afresh when the date of the new tax year rolls around on April 6th 2020.
What changes in the new tax year might affect my business?
It’s in the interest of your company for you to be as aware as possible of the potential effects that the new tax year’s changes could have on your company — especially as some are less obvious than others.
Since hitting a high of 52% back in the ’70s, Corporation Tax has fallen steadily over the decades, reaching the current record low of 19%. The Finance Act 2016 legislated that there would be a further drop to 17% at the start of the 2020/21 tax year, but the Conservatives may no longer adhere to this cut and instead maintain the current rate of 19%.
VAT reverse charge (in the construction industry)
Let’s move on to something brand-new, come the date of the new tax year.
Fraudulent activity within the construction industry has led to an initiative which will apply to all building and construction businesses from October 1st 2020.
The VAT reverse charge will apply to any transaction between VAT-registered building and construction businesses and will put the burden of accounting for that purchase’s VAT upon the shoulders of the customer — not, as was previously the case, the supplier. Furthermore, VAT cash will cease to flow between these businesses, instead it needs to be registered and declared on the invoice as a reverse charge.
Off-payroll in the private sector
Off-payroll working within the private sector, otherwise known as IR35, is due for a significant change at the commencement of the 2020/21 tax year.
From April the 6th 2020, any medium or large private sector businesses paying freelancers or contractors will be responsible for determining said workers’ IR35 statuses.
PAYE and National Insurance will be deducted from income at source, with the fee payer (generally the agency or end client) liable for making the relevant deductions prior to paying the worker their net salary. This change will mark a shift towards the way things are done in the public sector.
What changes in the new tax year might affect my personal finances?
It’s not just your company that might be affected by changes in the new tax year. Numerous shifts in the way you manage your personal finances could be on the horizon, too.
Capital gains tax
Capital gain is the profit you make upon selling an asset that has increased in value since you purchased it. The capital gains tax, then, is a tax on that gain — not on the total sum you received during the transaction.
At the commencement of the 2020/21 tax year, any taxpayer who has made a taxable gain on the sale of a British residential property will be required to submit a residential property capital gains return within 30 days, as well as pay the requisite capital gains tax owed.
The 2018 Budget unveiled a proposed change to final period exemption (FPE) which would particularly affect those in the property space. FPE currently stands at 18 months, meaning individuals do not need to pay capital gains tax on gains made in the final 18 months of ownership. This applies even if said individual is not an owner-occupier during that time. In the new tax year, however, FPE will be reduced to 9 months. This could impact those who have rented out, then sold, a property that was their primary residence.
The pension allowance, otherwise known as one’s Lifetime Allowance, is the total sum you can draw out tax-free from your pension schemes, including workplace pensions accrued during your career but excluding state and overseas pensions. In line with inflation, Lifetime Allowance is set to increase for the 2020/21 tax year from £1.055 million to £1.075 million, a rise of 1.9%.
In the new tax year, the state pension will increase by 3.9%, equivalent to roughly £6 a week.
In recent times, some banks have been called out for not being clear enough on their overdraft policies, such as whether customers are permitted to switch bank accounts if they have gone into their overdraft. Furthermore, many banks have historically offered overdraft rates and charges that are far too complicated for customers.
In light of this, the new tax year will see overdrafts changes. Overdrafts will be charged at a single rate of interest, advertised in a single, standard manner. This change will prevent banks charging additional fees for unarranged overdrafts and should help you pay off your overdraft more quickly.
National Living Wage
Let’s finish off with a nice simple one. The 2020/21 tax year will see a rise in the legal minimum wage for over-25s, increasing 50p to £8.72. Easy enough!
Are you ready for the new tax year?
The Conservatives’ comfortable majority in the last election means their budget will likely be passed by the house without incident. Most, if not all, of the promises laid out in their manifesto should therefore be met. However, even if their policies do pass, they can still be complicated for even the savviest of business owners, especially if they don’t have expert help on hand. Before making a major financial decision for your business, always do your research and, where possible, consult a financial advisor.
Whether you’re a freelancer, the director of an SME or the owner of a start-up, you may not have the luxury of a dedicated finance department to oversee bookkeeping on your behalf. You can overcome this obstacle by investing in some quality accounting software, and we can help you find the best accounting software for your business.
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